Founders

In our previous post we talked about the 3 elements every demo day pitch must have, and the biggest takeaway was to show traction: lead with real success indicators like monthly revenue and revenue growth. And this doesn’t just pertain to demo day. Many investors will say they want to see more traction before they’re ready to invest. You might be thinking, “Well, they just aren’t the right investor. They’re too risk averse!”

A lot of founders discard this investor feedback and just keep pitching to others, thinking that they’ll eventually find the right set of investors who are willing to take the risk and bet on a company with little revenue. That might be the case, but if you don’t have revenue, you’re negotiating from a position where you don’t have much leverage.

Founders need to face the new reality that they often must show revenue before an investor will write them a check.

Think about it this way: if you can tell every investor that you meet that your revenue is growing 20-40% month-over-month, you’re set to break even in 3 months, and you’ll hit profitability in 6 months, how do you think they’d react?

They’d recognize that you don’t need their investment, but they don’t want to miss out on an opportunity to invest and fuel your growth.

Headout helps travelers book experiences on demand using their mobile devices, while Pop Up Archive makes sound searchable through cutting-edge speech-to-text technology.

How Headout tripled their revenue

When we first met Varun Khona, the CEO and co-founder of Headout, he told us he was having a hard time raising capital. We asked him what the investor feedback had been, and he said that investors were unanimously telling him that he needed to 2X his revenue and grow in excess of 30% month-over-month.

So we recommended that he stop pitching and focus on sales and ramping up on revenue. He was nervous about pausing his fundraising activities, but we reassured him that if he focused on revenue, fundraising would be a cinch come demo day.

Headout, at the time, was operating only in NYC. They needed to think about how they could increase their sales. Here were the methods they used:

Added more suppliers to appeal to tourists

Increased awareness among tourists with more effective marketing campaigns and doubling down on existing distribution partnerships; counterintuitively, this actually led them to focus on fewer channels instead of more

Pushed for repeat sales with a new email marketing campaign, because many people frequent NYC multiple times a year

Added one additional city to grow the market: they launched in Vegas, thereby also addressing scalability concerns for the investor community

Focused on product-driven innovation to increase conversion rates, including but not limited to intelligent push notifications, relevant pop-ups, and UX-focused revamps

Their focused efforts during a 3-month period in the accelerator led to 3X in revenue. Varun was still pretty nervous about what investors would say, but we reassured him by pointing out that he now had more leverage. With his current run rate he didn’t need investment. He and his team could continue to grow for the next 6-9 months and would hit profitability. But investment could propel him past profitability by helping him open up additional cities and move faster than the competition, and that would be an opportunity no investor would want to miss out on!

Headout ended up closing a $1.8M seed round in February 2015.

How Pop Up Archive closed customers within a month

Sometimes you get stuck because prospects are giving you the run around. So while you’re spinning your wheels trying everything to get traction, you’re stuck in the mud because customers are indecisive.

When we met Anne Wootton, the CEO and co-founder of Pop Up Archive, she told us how she had about 10-15 prospects in the pipeline who were all very eager to sign up, but they were all taking their sweet time to get back to her.

Their indecision was holding up sales, and without sales she was concerned that investors wouldn’t take her seriously.

To help Anne out, we started out by asking her what would be a reasonable price point for her service that would also close customers quickly, without the need for them to go through lengthy internal approval processes. She said around $5K-$10K.

So we suggested she create a pilot program with a clear product offering that would be aligned with what they were looking for, at a price point that would make the decision fly through approvals. And to get them to close quickly, she needed to “SUE” them:

Scarcity: Anne would open just 10 spots for her pilot program.

Urgency: If prospects were interested, they would need to reply by May 15, 2014, no extensions. But she’d of course send out reminder emails to reiterate the value proposition of the pilot and nudge them along.

Exclusivity: The program would only be available to customers that met a certain set of criteria. This way, they felt like they were getting premium service and working with a company that cared about their specific needs.

Anne set up a 3-part email campaign series, and after just the first email, her phone started to ring with interest! But unlike before, these customers were ready to move forward and make a decision.

Of course, there were people who said no, but creating a forcing function made it clear whether a prospect was actually interested or just shopping around.

Anne closed her pilot and used the resulting sales to show a 6-figure run rate, which appealed to investors and helped her close a round of funding of $1M+ in 2014.

David Lee (@davidyhlee) is the founder and CEO of Shakr, a service that allows small businesses and individuals to create professional-quality videos using photos and video clips. Lee is based in Seoul and I had the opportunity to ask him a few questions.

What drove you to build this company in the first place?

The inherent unfairness of the most effective and powerful storytelling medium being monopolized by people and entities that have no other qualification than deep pockets. It’s despicable to allow such power to be so dramatically financially inaccessible. I don’t want to live in a world where I’m bombarded with video produced only by the wealthy. I want to make sure we turn video into a communication medium that can also be used by the little guy that has deep love and respect for his craft, just as effectively (but maybe not at the same degree of reach) as Big Business.

What is your definition of a successful entrepreneur?

Success as an entrepreneur to me is doing something awesome for lots of people. Touching the lives of many, creating massive value at scale, that’s what I’m reaching for. If I do that well, I’ll reap both intrinsic and material rewards.

How do you approach fundraising?

We focused exclusively on angel investors who have achieved success as entrepreneurs in their lives. Having great angels on board comes with a slew of benefits. We’re also happy to have institutional investors like 500 Startups, NHN Investment, Posco Capital and Strong Ventures on board.

Do you have a mission and/or mantra?

We started Shakr with the idea that we would “Reimagine everything.” Eventually, that evolved to “Great Video for Everyone.” The idea is that video is the most effective and powerful storytelling medium, however the high upfront cost of traditional video creation made it accessible to the wealthy. Shakr is leveling the playing field, and giving the little guy access to producing high production value video.

Can you tell me about an experience where, at the time, it felt like a failure but looking back on it you can see how it was a positive learning experience or led you to success?

Nope. Can’t keep me down. Never could. Really, I can’t reframe any of my experiences in a way that didn’t lead to a positive learning experience. It comes down to this: If you’re not winning, you’ve already lost. So every loss is just a step towards winning – so those losses are not even losses to begin with.

Do you have a mentor yourself? If so, how did you find them and get them to help? How has working with a mentor affected you and your work?

My co-founders DJ, Minku, Simon. They all found me – while working together, they just naturally grew into incredibly important advisors to me. I learn from them every single day. They have helped me think bigger, think fairer, and think through the challenges we run into every day.

Can you talk a bit about what your relationship is like with the tech industry?

I try not to get involved. I don’t even think there is a “tech industry.” I’m in the business of enabling video professionals to enable normal folk to make lots of great video. Technology is just what we use to make that possible.

Can you recommend one or more entrepreneurs in your region who are doing great work?

What challenges do you have to deal with, and how do you overcome these challenges?

I think entrepreneurs all have a view in their minds, in their souls, of a world that’s at least a little bit better. Most of them run out of steam, run out of money, run out of air to breath before they can persuade others to help them make that better world a reality. Like all entrepreneurs, I’m frightfully overmatched by the inertia of the world. My challenge is to express the right words, the right intentions, all at the right times and to the right people, and if not the right words, times and people, something close enough to right. If I’m doing that at least well enough, but ideally far better than well enough, I’ll have great people around me to help drive us to and beyond where we’re going.

What’s the greatest memory of building you company? What was the hardest day and why?

The greatest memory was about two months ago, when one of my co-founders led our first town hall meeting. We originally had weekly all-hands meetings but they lost meaning. My co-founder Minku led the reimagination of what our company meetings should be, and I was incredibly proud to see everyone come together under his leadership. Since then, we’ve had engaging town hall meetings where progress is shared, paths are clarified, obstacles are overcome.

The hardest day was when I turned down a hundred thousand dollar check when we were days away from pay day, with close to zero dollars in the bank. (Every one still got paid on time.) I’ll leave the why to another day, off the record. 🙂

What is your long term vision for the company?

We’re in this to make great video creation accessible to everyone. The current situation only makes sense to big companies, who were the only ones that could afford to produce high production value video before Shakr. That ends now.

Join our 500 Startups Transatlantic tour! We’re back on the road and want to meet YOU. Come meet members from our investment team and learn more about building your startup. We want to meet some of the world’s most promising startups. Our evening meetups are free to attend and will be followed by a relaxed evening of drinks and mingling. Learn more about 500’s seed fund and accelerator. Have questions? Get answers here.

Can’t join the tour? Learn more about 500’s accelerator program and apply online.

Attendees will:

> Meet 500: Who’s behind 500? You’ll find out. In return we’ll want to meet you, learn more about what you’re working on, and help you out. We think it’s a good deal.

> Ask 500: Chat with the 500 team and its founders to find out how they select who to invest in, and what it’s like to join the 500 family. This will come in handy if you end up joining us!

> Network 500: We’ll be bringing together other great founders from your area, so this will be the perfect time to network and buddy up.

District Cowork is a new coworking space in New York for entrepreneurs with modern open space, designer lounge, conference rooms and a relaxing rooftop.

AngelList is where the world meets startups. Investors: invest in early-stage startups. Startups: find team members, angel investors and venture capital.

SoundCloud is the world’s leading audio platform, where anyone can share and discover unique music and audio, on the web and on mobile.

Partner: General Assembly is an educational institution that transforms thinkers into creators through education in technology, business and design. Our global network of students, instructors, and entrepreneurs aims to bring people together to take advantage of a new kind of learning-by-doing approach to education.

Partner:OneEleven is over 15,000 square feet of start-up development space in the downtown Toronto core where our region’s brightest minds will have complete access to high performance computing, training and development, industry partnerships, and domain expertise, mentorship and financing to create the next generation of data-driven technologies.

500 Startups has always been bullish about online commerce, despite economic fluctuations. The future of commerce is not in traditional brick & mortar stores, but in the innovative online plays from companies like ModCloth, Polyvore and Shopify.

Shopify’s Chief Platform Officer, Harley Finkelstein, will be speaking at our upcoming COMMERCISM conference, so we asked him to share some lessons he’s learned as a serial entrepreneur + his thoughts on the future of commerce.

Q. What is the biggest lesson you’ve learned since founding your startup or starting your career in the eCommerce space?

A. Test and test and test and test. I think that persistence is really important in business, but in the ecommerce retail space, you have an opportunity to try something and see if it works and pivot from there – I think that’s the biggest lesson. In a traditional brick and mortar business, you can’t really try something to see if it works and then rip it all down if it doesn’t and try again; it’s just too expensive. But the digital world lends itself well to a culture of experimentation, and I think that’s really important.

Q. Who else in the industry should be on our watch list, in terms of innovation & growth?

A. I think the entire retail industry is being democratized right now. Every pillar of retail is changing, from fundraising to prototyping to the actual shopping cart. You’re seeing Kickstarter and crowdfunding platforms democratizing funding, and making it really easy to raise money. You’re seeing 3D printing making it so simple to create prototypes and samples. You’re seeing companies like Shopify making it really easy to create a store and begin selling in a matter of minutes. I think that there’s not just one company to look at, because the industry in general is going through this incredible revolution. It’s important to keep your eyes peeled.

Q. What is the the future of eCommerce & why?

A. Everywhere. There are these rumours in the industry that e-commerce is going to kill offline commerce, and it’s online versus offline. You have companies like Best Buy saying that during last year’s holiday season, online did amazing but offline didn’t do so well. I don’t think the future of retail is one or the other. I think the future of retail is commerce everywhere. It’s all about consumer choice. Retailers and merchants need to be ready to transact any way the consumer feels most comfortable.